"Democratic leaders, including Obama, say they are intent on letting the tax cuts for the wealthy expire as scheduled at the end of this year. But they have pledged to continue the lower tax rates for individuals earning less than $200,000 and families earning less than $250,000, what Democrats call the middle class."

For example 2001/2003 tax cuts moved child credit for $500 per child NON-REFUNDABLE to $1,000 per child FULLY REFUNDABLE.

So take a family with 3 children. Prior to 2001 they potentially had up to $1,500 in tax credit. However if their taxes were less (say $9,00) then the tax credit was equal to maximum in taxes. Essentially it could only reduce taxes owed to $0.00.

Under 2001/2003 tax cuts the credit would be $3,000 and it would be fully used regardless of taxes owed. Same $9,000 in taxes - $3,000 tax credit = -$2,100 in taxes (payment from government).

12. Here are the major provisions for middle class in 2001/2003 tax cuts...

Edited on Mon Jul-26-10 12:11 PM by Statistical

First thing is it created a 10% bracket. Prior to 2001, the first $27,000 was taxed at 15%. The tax code split the 15% bracket into 10% and 15%. The first ~$8,000 taxable (single) is taxed at 10%. The rest is taxed at 15%. Net reduction of 5% on first $8,000 taxable = ~$400 per person. Married filling jointly it is first ~$16,000 resulting in $800 more taxes.

Next major change was elimination of marriage penalty. The married brackets were indexed to 200% of single bracket for 10%, 15%, 25% brrackets. Given most couples involve 2 working spouses taxing married at 125% of single resulted in higher taxes in past.

For example in 2000 take 2 persons. Each earned $40,000 in taxable income. They each would pay roughly $7,800 in taxes for a total of $15,600. If they were married however ($80,000 total) they would pay $19,500. That ~$4,000 increase was the marriage penalty. By changing married tax brackets (only for those making less than $68,000 taxable) to exactly double the single rate it eliminated the penalty for being married.

Third major change was moving child tax credit from $500 non-refundable to $1,000 refundable.

Last major change was reduction of 28% bracket to 25%. 3% marginal reduction isn't huge but it can add up to couple hundred bucks for those in that bracket.

Depending on your situation the 2003 tax cuts mean you tax bill is $400 - $2500 less than it will be if those provisions aren't extended.

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